What Will The Yahoo-Microsoft Deal Look Like?

The latest word is that if Yahoo hands over its search business to Microsoft (MSFT), Yahoo (YHOO) will in turn take over Microsoft's display ad business.

What will that look like?

We spoke with some display advertising industry sources -- including some at the companies involved -- and they think the combination will turn out one of three ways:

Yahoo and MSN could join in a co-selling arrangement. Yahoo could program some parts of MSN and sell ads against that content. This would work because the audiences don't really overlap. They go to MSN.com or Yahoo.com because that's where their email is. Yahoo could also sell MSN's remnant inventory.

Yahoo could simply take over MSN's ad sales operations. Think of the way a hotel management company runs a hotel, explained one source.

Yahoo could buy MSN outright.

We think the last option is the best option. Our sources agree for three reasons:

Because search is such a huge part of the company, for the sake of company morale, Yahoo CEO Carol Bartz has to come back with something more than a co-selling agreement if she's going to give up search.

Second, while Yahoo has cash, and that's nice, shareholders like tangible assets such as MSN more.

Finally, one Microsoft executive tells us it's clear from the inside that the company is far more interested in moving forward on search than in display. It's willing to move MSN cheap. "Microsoft is pretty much focused on search," he says.